BONDS: NZGBS: Yields Up Following US Lead But Key Benchmarks Under EMAs
NZGB yields are around 3bps firmer across the benchmarks, albeit with the 2yr lagging (steady at this stage near 2.52%). The 10yr is back just under 4.00%. This follows a solid rise in US cash Tsy yields in Thursday trade, buoyed by the +5% rise in oil benchmarks. The US 10yr got back above the 4.00% handle, leaving the NZ-US 10yr spread back around flat. Dips in this spread into the -3-5bps region have been supported, with our fair value estimate holding higher this week.
- For the 10yr NZGB yield, all key EMAs remain in a comfortable downtrend, but further upside given US moves, higher oil and this week's local CPI print, can't be ruled out. Note the 20-day EMA is around 4.08%. For the 2yr, it is a similar backdrop with the 20-day EMA yield resistance point around 2.62%.
- The NZ 2yr swap rate, like the 2yr NZGB yield is holding relatively steady, last near 2.325%, with the 20-day EMA near 2.39%, while the 50-day at 2.55% is likely to present tougher resistance. We haven't breached this point since June of this year.
- Looking ahead to next week, we have jobs filled data out on Tuesday, while ANZ business and activity figures print Thursday, then ANZ consumer confidence is out on Friday. The Q3 jobs data, due Nov 5 is likely the next major focus point from an RBNZ standpoint (next meeting on 26th of Nov).
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US TSYS: Yields Retracement Stalls, End lower Led By The Long-End
TYZ5 reopens at 112-31, up 0-03 from closing levels in today’s Asia-Pac session.
- Overnight the US 10-year yield had a range of 4.1023% - 4.1466%, closing around 4.106%.
- Treasury yields retracement higher stalled overnight and saw yields end lower; this was led by the Long-end which saw the yield curve flatten (2s10s -2.36 at 51.798, 5s30s -1.00 at 104.934).
- 10-Year Yields found some buyers back towards 4.15%. Is that the top, I suspect we test the 4.20% area at some point where demand should again return. A sustained break through 4.00% is needed for the focus to then turn towards the 3.80% area.
- MNI FED: Powell Reiterates "There Is No Risk-Free Path", Policy Not On Preset Course. His comments don't appear to deviate much if at all from last week's FOMC press conference, hence a limited market reaction. "Two-sided risks mean that there is no risk-free path. If we ease too aggressively, we could leave the inflation job unfinished and need to reverse course later to fully restore 2 percent inflation. If we maintain restrictive policy too long, the labor market could soften unnecessarily. When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate."
- MNI FED: Atlanta Fed Bostic's Longer-Run Dot Suggests Limited Impetus To Cut Further.Atlanta Fed President Bostic added some reflections on the economy and rates in a podcast recording Tuesday morning. Recall that in an interview published in the Wall Street Journal Monday he confirmed he maintained his view for just 1 rate cut in 2025, which makes him among the 7 most hawkish members on the Committee in terms of 2025 rates, with 6 of 19 members writing in 4.1% end-year Fed funds in the Dot Plot.
Fig 1: 10-Year US Yield 2H Chart
Source: MNI - Market News/Bloomberg Finance L.P
CNH: USD/CNH Drifts Away From Recent Highs Near 7.1200, Implied Vol Lower
USD/CNH largely tracked sideways post the Asia close on Tuesday. We track near 7.1130 in early Wednesday dealings, slightly down from recent highs near the 7.1200 level. Broader USD indices were down a touch for Tuesday's session. Spot USD/CNY finished up at 7.1132, while the CNY CFETS basket tracker lost a little ground (-0.10%) to 96.45.
- For spot USD/CNH technicals, little has changed. We remain sub all key EMAs, the 20-day at 7.1250, while the 50-day is at 7.1480. renewed downside focus is likely to rest back under 7.1000. Implied vol levels for USD/CNH continue to track lower, making fresh cycle lows sub 2.50% in Tuesday trade.
- There were numerous Fed speakers overnight, with Chair Powell's outlook not deviating much if at all from last week's FOMC press conference as "two-sided risks mean that there is no risk-free path." US Tsy yields finished lower, led by the back end, while equity sentiment also softened.
- US-CH yield differentials sit slightly lower but remain up from recent lows. The Golden Dragon equity index lost a further 2.22% in US Trade overnight, down for the fourth straight session. Onshore equities fell a touch yesterday.
- More work appears to be needed around China rare earth exports, at least according to US lawmakers who visited China recently. The same officials are also hopeful of a big Boeing order from China.
- The local data calendar is empty until Aug industrial profits print (out on Saturday).
ASIA: Coming Up In Wednesday Asia Pac Markets
| 0130BST | 0830HKT | 1030AEST | Japan Sep Preliminary PMIs |
| 0200BST | 0900HKT | 1100AEST | Australia 2033 Bond Sale |
| 0230BST | 0930HKT | 1130AEST | Australia Aug CPI |
| 0300BST | 1000HKT | 1200AEST | South Korea Aug Retail Sales |
| 0700BST | 1400HKT | 1600AEST | Japan Aug F Machine Tool Orders |
Source: Bloomberg Finance L.P./MNI
